Better yet, why do we need operating systems with the bloat that they got today? Win3.11 was a decent system at the time and if all they need is included in it and there is no security repercussions than I guess it is ok.
But once you add the expectation that it should work with future hardware as well maintain backward compatibility, then bloat is inevitable.
The real pain is populating the userspace if you need more than just busybox.
Never used it; don't know how well it works in practice. But it's the type of thing that can be made to work. Looks like some minimum requirements are a tad higher than the minimum of Windows 3.1 though, so it depends a bit on what you mean exactly with "Windows 3.1 era hardware".
The orginal Win311 ran fine for 30 years probably until the HDD failed and they need someone to do a reinstall. Why would they change the operating system?
It would certainly be silly to change OS just for the sake of it on a 30 year old project.